Friday, December 23, 2011

DWSD Update confirmed earlier this morning that one of the contractors we originally included in the list of contractors affected by the Water Board's December 21, 2011 suspension resolution -- D'Alessandro Contracting Group -- was NOT included in the final resolution that was voted upon by the Water Board. D'Alessandro Contracting Group is NOT suspended and NOT barred from being awarded contracts with the Detroit Water and Sewerage Department. Crain's Detroit Business has also noted this correction (here).

Wednesday, December 21, 2011

Earlier this afternoon, the City of Detroit, Board of Water Commissioners conducted a Special Meeting and adopted a resolution declaring 14 13* contractors to be non-responsible bidders and suspended them from bidding DWSD work for a period of 3 years.

The contractors suspended from bidding on DWSD contracts until December 31, 2014 are among the contractors cited in the federal indictments unsealed last December against disgraced-former Mayor Kwame Kilpatrick, his father, Bernard Kilpatrick, contractor Bobby Ferguson, and former DWSD Director Victor Mercado.

The contractors affected by the Water Board's action today include the following:

A&F Environmental

A&H Contracting, Inc.

D'Agostini & Sons, Inc.

*

DLZ Laboratories, Inc.

E&T Trucking

Ferguson Enterprises, Inc.

Inland Waters Pollution Control, Inc.

Inland Management and Inland Rehabilitation Pipe Co.

Johnson Construction Services a/k/a Johnson Consulting Services

Lakeshore Engineering Services, Inc.

Maestro Associates, LLC

Walbridge Aldinger Company, Inc.

Xcel Construction Services, Inc.

The Water Board included the following administrative appeal procedures as part of its resolution:

The Board shall reconsider the parties and suspension period upon receiving additional information from the U.S. Attorney's office. A company may appeal the application of this policy to an ad hoc committee of the BOWC, appointed by the Chair, which shall receive evidence and information and report to the entire Board. The suspension can only be modified by motion of the Board.

Following adoption of the suspension resolution, the Board proceeded to approve a $13,117,000 contract for the Rouge River Outfall No. (RRO-2), Contract PC-786, with the third bidder, Walsh Construction, bypassing Walbridge Aldinger, who was second in line for the contract after the low bidder, Lakeshore Engineering, retracted their low bid.

Comment: The Water Board's actions today have enormous implications for the affected companies, many of which perform federal contracts, and a huge impact on the local contracting community. The Board's actions, which the Chair reported were supported by Oakland, Macomb and Wayne Counties, will be felt well beyond DWSD. Two of the named contractors are among teams who proposed on the bio-solids contract (PC-781). If their suspensions are upheld, it would surely jeopardize their proposals.

Update (12/22): Crain's Detroit Business has an article (here), which quotes several of the Water Board Commissioners and adds further insight into the reasons for yesterday's suspension resolution.

Update (12/23): DWSD Update confirmed earlier this morning that D'Alessandro Contracting Group was NOT among the contractors included in the final suspension resolution adopted by the Board of Water Commissioners on Wednesday. They were included in the proposed resolution, outlined in the Board Agenda, but NOT included in the actual resolution, as read into the record by Commissioner Fred Barnes, and NOT included in the final vote. To be clear: D'Alessandro Contracting Group has NOT been suspended nor barred from receiving DWSD contracts.

Tuesday, December 20, 2011

Detroit Contracting, Inc. (DCI) submitted the low bid earlier this afternoon on the project known as DWSD Contract PC-783, "Underground Electrical Ductbank Repair and EB-1, EB-2 and EB-10 Primary Service Improvements at WWTP and Replacement of Selected Roads at WWTP."

The electrical portion of the project consists of installation of a new 120KV electrical feeder from DTE, replacement and addition of transformers, switchgears, MCC's and motor starter line ups. In addition, other electrical work including lighting, ground and lightning protection for buildings EB-1, EB-2 and EB-10.

Monday, December 19, 2011

For the second time in less than a month, Judge Sean Cox has denied a local union's motion to intervene in the 34 year old lawsuit against the City of Detroit, Water and Sewerage Department.

This time, Judge Cox considered and denied a Motion to Intervene by AFSCME Local 207 and the Senior Accountants, Analysts and Appraisers Association (SAAA). The reasons cited by the Court were virtually the same ones Judge Cox cited when he denied AFSCME Council 25's motion on November 18, 2011: Local 207's motion was untimely.

Tuesday, December 13, 2011

On Sunday, December 11, 2011, some 80 people gathered at the Fort Gratiot County Park to mark the 40th Anniversary of the Port Huron (Detroit) "water tunnel explosion," an accident that claimed the lives of 22 tunnel workers who died in a methane gas explosion.

The men were working at the time on a intake tunnel for the Port Huron Water Treatment Plant, then being constructed by the Detroit Water and Sewerage Department. The accident still ranks as one of Michigan's worst industrial accidents.

Monday, December 12, 2011

Detroit Mayor Dave Bing is seeking a 10 percent price reduction from City of Detroit suppliers effective January 1, 2012. Crain's Detroit Business reports today that the Mayor's request extends to companies that do business with the Detroit Water and Sewerage Department.

In a December 2, 2011 letter, which was received by suppliers last week, Mayor Bing writes:

The financial participation of all stakeholders, including suppliers, has been identified as a key component in this overall cost reduction strategy. Given the importance of the supplier community, the City of Detroit will be contacting all suppliers to begin an earnest dialogue around the City's financial position and its implications.

Update (12/13): The Detroit Free Press (here) and Crain's Detroit Business (here) are reporting that the City of Detroit has already stopped paying some of its vendors. I've not heard or read of anything similar happening on DWSD projects, however. Have you?

Update (12/14): The Chair of the Board of Water Commissioners, James Fausone, indicated at today's regular Water Board Meeting that the 10 percent cut requested by Mayor Bing would be discussed further at a Special Meeting of the Water Board on December 21, 2011.

Monday, December 5, 2011

Governor Snyder's announcement last Friday that the State of Michigan was initiating a review of the City of Detroit's finances, the first step in the appointment of an Emergency Financial Manager (EFM), has triggered concerns about the financial impact such an appointment would have on the Detroit Water and Sewerage Department.

Following the Governor's announcement, The Bond Buyer, a national trade publication that covers the municipal bond industry, warned (here) that DWSD could face "huge fees" triggered by the appointment of an EFM, which would be a "credit event" under insurance policies that accompany $1.6 billion worth of water bonds.

[T]he appointment of an emergency manager . . . would trigger termination events on [credit default] swaps that hedge $948 million of pension obligation certificates issued in 2006 and $1.6 billion of water bonds. Detroit in early 2009 narrowly avoided a $400 million termination fee tied to the pension certificates after it was hit with a downgrade that prompted a termination event. Local officials negotiated for months with the two counterparties to achieve an amended agreement that avoided the payment. If the state appoints an emergency manager, Detroit would face the same problem again.

* * *

Last April, Fitch Ratings downgraded the city's $2.1 billion of water bonds, citing in part an extensive derivative program at the Detroit Water and Sewerage Department that hedges $1.6 billion of the debt. "In recent years the negative fair value of the department's swaps have risen, increasing the termination risk associated with the swaps," Fitch's Doug Scott wrote. "Should the department be required to post collateral, it would negatively affect the department's financial profile to some extent."

The city is planning to come to market with a water bond refunding to shed the swaps and avoid termination payments. The price tag of the termination fees remains uncertain, but it would likely be in the hundreds of millions. At the end of 2010, the negative valuation of the water and sewer bond swaps was $165 million. (emphasis added)

The issue (and risk) of termination fees is discussed in the financial notes section of DWSD's 2010 Water Fund Financial Statement (here) beginning at p. 25.

Comment: I profess no expertise in this area, but this report seems rather alarming to me. At a minimum, faced with penalties in the "hundreds of millions" range, DWSD would have to delay or defer a number of significant capital improvement projects. If someone with a background in public finance or municipal bonds (or credit default swaps) can shed light on this issue, please comment. Your input would be appreciated.

Update (12/6): The Detroit News reports this morning (here) that "The [State of Michigan] has yet to approve a deficit elimination plan Detroit submitted in July, a delay that puts a hold on the sale of about $900 million in bonds for capital improvements of the city water-sewer system."

Thursday, December 1, 2011

Update (1/11): At the Special Meeting on January 11, 2012, Commissioner Mary Blackmon, reported that Jim Ridgway had declined the contract offered by the Water Board. It appears that the Board will consider another candidate for this position.

The Board of Water Commissioners voted yesterday to approve the hiring of Jim Ridgway as Technical Advisor to the Water Board.

Mr. Ridgway has a B.S. in Environmental Engineering and a M.S. in Civil Engineering, both from the University of Michigan. Mr. Ridgway also has prior DWSD experience. He served as Assistant Director of Wastewater Operations for 5 years during the mid-1980s. Click here for his LinkedIn profile.

Mr. Ridgway joins Butler Benton, who has been hired as the financial advisor to the Board of Water Commissioners. Messrs. Ridgway and Benton will assist the Board in reviewing rate setting, capital projects and other financial and operational matters.

Wednesday, November 30, 2011

On November 23, 2011, the Michigan Department of Environmental Quality (MDEQ) issued a Finding of No Significant Impact after conducting an Environmental Assessment of the Rouge River Outfall Project (RRO-2), DWSD Contract PC-786.

Unless the DEQ receives any substantive comments within 30 days of its finding, its preliminary decision will become final. At that point, DWSD will be eligible to receive loan assistance from the State Revolving Fund (SRF).

Tuesday, November 22, 2011

Lakeshore Engineering has asked the City of Detroit for permission to retract its bid on the Rouge River Outfall Project (DWSD Contract PC-786), which was submitted last week. Lakeshore was read the low bidder on this project (here) at $11,855,749.

In a November 17, 2011 letter to the Purchasing Division, Lakeshore explained that one of its employees had retrieved the bid after it was submitted, but before the filing deadline, to make corrections. Lakeshore reports that it resubmitted the corrected bid before 2:00 p.m., but that its actions had raised concerns among the other bidders. To avoid a dispute, Lakeshore explained, it was asking to withdraw its bid.

Assuming the City of Detroit grants Lakeshore Engineering's request, Walbridge Aldinger stands to get the contract as the second low bidder at $12,970,000.

Friday, November 18, 2011

Less than a week after AFSCME Council 25 filed its Motion to Intervene in the EPA Lawsuit in order to block implementation of the U.S. District Court's November 4, 2011 Order, Judge Sean Cox earlier today issued an Opinion and Order DENYING the motion on grounds that the motion was untimely.

Timeliness of a motion to intervene is a threshold issue for any court to consider. In this case, Judge Cox found that "this Court's analysis begins, and ends, with timeliness."

Judge Cox considered four (4) elements related to timeliness:

1. How long did AFSCME know of their interest in the case?

The first factor, the length of time preceding the application for intervention during which the proposed intervenor knew or reasonably should have known of his interest in the case, is the most significant factor here and weighs heavily against intervention.

The DWSD has been under federal court oversight since 1977. This case has garnered considerable media attention over the past four decades. . . . [T]he risk that orders in this action may affect collective bargaining agreements and union work rules, as they relate to DWSD, has been apparent for decades. [Court then cites reports from 1977-2009] * * * In addition, there is no question that AFSCME had actual knowledge, no later than September 9, 2011 [when the Court issued its Opinion and Order Denying Detroit's Motion to Dismiss the EPA Lawsuit], that its interests would likely be impacted by orders that would be issued in this case on an expedited basis. * * * Nevertheless, neither AFSCME nor any of the other 19 unions that represent employees of the DWSD sought to intervene after this Court issued its September 9, 2011 Opinion & Order. Rather, union representatives met with members of the Root Cause Committee to voice their views and adopted a "wait-and-see" approach . . .

In this case, AFSCME Council 25 did not attach a proposed complaint or other pleading.

3. Will there be prejudice to the original parties to the lawsuit?

Judge Cox concludes in his Opinion and Order that the answer to this question is a resounding -- Yes.

The EPA initiated this action [in 1977] to address violations of the Clean Water Act, the objective of which is to restore and maintain the chemical, physical, and biological integrity of the Nation's waters. It is undisputed that, over the course of the past four decades, the DWSD has had serious and recurring NPDES permit violations, which constitute violations of the Clean Water Act.

* * *

This Court has already concluded that certain collective bargaining provisions and work rules are impeding the DWSD from achieving compliance with its NPDES permit and the Clean Water Act and issued an order enjoining those provisions. If the Court's Order is not implemented immediately, the DWSD's ability to function and reach compliance with its NPDES permit, the ACO, and the Clean Water Act will be jeopardized. That would prejudice the City of Detroit, the DWSD and its customers, the general public, and the DEQ -- the entity current charged with enforcing the DWSD's NPDES permit, which has spent considerable resources monitoring DWSD over many years.

4. How far has the case already progressed?

Judge Cox also answers this question in the affirmative citing the long duration of this case and numerous reports citing issues with the collective bargaining agreements, work rules and job descriptions.